Chris Philp is has served as PPS in the Treasury and MHCLG, and on the Treasury Select Committee. He is MP for Croydon South.
One of the signal achievements of the Thatcher Government was the home ownership revolution. Millions of people were able to buy their own home for the first time – through right-to-buy and a more dynamic housing market generally. Sadly, much of that good work has been undone in the years since.
Home ownership rates have fallen from a high of 71 per cent in 2005 down to 63 per cent today. The falls are especially acute amongst those in their 20s and 30s, where home ownership rates have almost halved since the early 1990s. No wonder we have trouble getting younger people to vote Conservative.
Home ownership is an inherently beneficial thing. Those who own their own home enjoy secure tenure and lower housing costs than those renting. Over the long term, it is financially better to own rather than rent – even if house prices do not rise faster than inflation. And owning a property gives people a real sense of a place they can call home. It is no surprise, then, that 86 per cent of the public aspire to own their homes. Given only 63 per cent actually do, around a quarter of our fellow citizens wish to own their own home but do not. We should help them.
Stamp duty is a major barrier to buying a home. It is a cash cost that cannot be mortgage-funded. Given that up-front cash costs are the biggest impediment to buying, this is serious. Stamp duty acts as a barrier for buyers of all kinds, which means housing stock is not freed up by downsizers and there are negative effects on labour mobility.
It should be a legitimate – and popular – objective of public policy to help prospective home buyers. In the last ten years, owner occupiers have been crowded out by financial investors and second home buyers, often from overseas, who have superior financial firepower. They currently make up around a quarter of all residential sales, and even more of new build sales. The Government has already recognised this by abolishing stamp duty for first time buyers purchasing properties under £300,000 and cut it by £5,000 for those buying at under £500,000.
We need to do more. As I and Guy Miscampbell set out in a new report for Onward, the Government should:
- Abolish stamp duty entirely for all purchases of a main home under £500,000.
- Halve current rates of stamp duty for purchases of a main home over £500,000.
This would abolish stamp duty for nine out of ten owner-occupiers and save a family buying an average priced London home £13,000, or half of a five per cent deposit. The cost of this policy is £3.3 billion. But it would help more people buy their first home, and make moving house – for a new job, to downsize or to upsize – much easier. For the most expensive properties, where stamp duty is currently charged at a marginal rate of 12 per cent, it is likely that transaction volumes are being suppressed. Halving stamp duty for those properties should result in a positive Laffer effect, due to an increase in transaction levels.
But any new policy should be fiscally responsible. To fund the £3.3 per year billion cost, I propose a number of smaller tax changes, where there is broad public support for taxation and a clear case for action:
- Introduce a one per cent annual tax on the value of homes left empty for more than 6 months in a year, raising £645 million.
- Increase the current three per cent stamp duty surcharge on second homes and investment properties to 5 per cent, raising £790 million.
- Introduce a further three per cent stamp duty surcharge of non-UK resident buyers of residential property, raising £540 million.
- Introduce an extra higher band of council tax at a £1,700 per year council tax premium for the 0.4 per cent most expensive properties, raising £173 million.
- End all council tax reliefs for vacant and second home property, raising £75 million.
- Create a new eight per cent (up from five per cent) stamp duty band for the portion of commercial property purchases over £1 million, raising £682 million.
- Levy stamp duty on residential properties transferred by selling the company that owns them via transparent ownership rules (which would also help combat money laundering), raising £175 million.
Double the Annual Taxation on Enveloped Dwellings, raising £140 million.
These measures taken together will help first time buyers, down sizers, upsizers and people moving home to help their job. It will tax overseas investors (usually from the far east) who are treating UK homes as a financial asset and crowding out first time buyers with their superior financial firepower.
Tilting the playing field back towards UK-resident first time buyers and owner-occupiers is the right thig to do. The new Government should use the coming autumn budget to do exactly that.